Businesses originate from a business idea, before one starts a business one ought to assess the viability of an idea and the industry the idea targets. Under Armour one of the athletic apparel company having its headquarter in the US started following a gap in the that existed in the industry, one included increased prices of athletics products such as shoes, shirts, tracks, and the need to produce products that are quality and meet the needs of athletes. These ideas and many others triggered Kevin Black to establish the company in 1995. The industry itself is not that good; it is faced with stiff competition each of the players trying to outdo each other so as to remain monopoly in the industry. Being new in the industry, Under Armour (UA) faced relatively stiff competition from competitors such as Adidas, Nike who dominated the market at the time. The company had to implement some ideas to ensure that it stayed relevant in the market and to widen its market and also increase its sales. The company had a mission of making athletes across the world better through design, passion, and innovation. It is this innovativeness and creativity that enabled them to introduce moisture-wicking shirt to enable athletes to remain dry and more comfortable during their workouts and even games. This is a new idea in the market, none of the top competitive companies has ever thought of this, the idea will make the company a unique one and therefore remain more competitive compared to the other players in the industry despite being new in the industry.
Costs of production
Analysis of various costs
Under Armour experiences various costs that have a negative impact on its financial performance. Costs are necessary expenditures that an organization has to incur for it to run. Below are some of the costs that affect Under Armour’s profitability.
Fixed costs: Under Armour, experiences fixed costs on a daily basis. Fixed costs are termed to as expenses that hardly changes irrespective of an increase or decrease of production. Some of these costs include rent, property taxes and insurance and depreciation (Under Armour, 2017). In the past three years, fixed costs for Under Armour have been constant but negatively influenced its financial performance. Indirect costs are similar to fixed costs in that they are not directly related to the volume of output.
Variable costs: Variable costs refer to the expenses that keep on changing depending on an organization’s production output. Under Armour’s financial performance in the past year has been on the decline and financial analysts believe that increasing variable costs are partially to blame. Variable costs are similar to direct costs in that they can be attributed to an organization’s volume of production. A significant increase in Under Armour’s variable costs in the past one year has had a negative impact on its profitability. The company needs to implement measures that will effectively deal with the surge in the variable costs.
Product costs: Product costs have a direct impact on the financial performance of Under Armour. Across the years, the company has implemented various strategies that are aimed at cutting down on the ever-increasing product costs (Under Armour, 2017). Product costs are termed to as those expenses that are directly associated with the production output. Under Armour is in the process of searching for suppliers that will provide high-quality raw materials at slightly lower prices. The move is aimed at contributing to a reduction in the product costs that it faces.
Period costs: A period cost refers to any cost that can hardly be capitalized on fixed assets or prepared expenses. In the case of Under Armour, period costs have been on the rise in the past two years and this has since had a negative impact on the firm’s profitability. Period costs are usually charged as expenses in the current period and this implies that any increase in the costs has a negative effect on the profit levels.
Section 2: Market Analysis
Exploration of the firm’s overall market
Market share of the company
Two years ago, Under Armour (AU) was the best in the athletic apparel industry and was perceived major competitor for both Nike and Adidas. Nevertheless, between the periods mid-2015 and mid-2016, its stock price declined by about 80%. Under Armour having its market share of 2% is facing the risk of falling below its rivals Adidas and Nike, New Balance shares if 1.75% (Under Armour, 2017). Comparing it with its three major competitors in the industry, Under Armour has a market share of 0.004%; this is too low considering the market share of (55.849%) for Nike. Following the 2017 apparel industry data, Adidas came second having a market share of 35.723%. Based on the same data, Puma emerged the fast-gainer as at 2017 with a market share of 8.424%. For the last three years, AU company market sustainability has been dropping as a result of stiff competition from already established firms.
Market share sports apparel sector
Brand performance 2018
Barriers to entry in the sector
There are a number of barriers in the industry that only favors those firms that have already established in the industry such as Puma, Adidas, Nike and Under Armour. The barriers in the apparel sector hinder upcoming companies from successfully venturing into the industry. Penetrating the market is a real problem to the firms hence forcing them to decline and venture into other less competitive businesses. One such barrier is the huge capital that is required for a firm to compete with the rest, this is so challenging for upcoming companies. The other barrier is the challenge to winning customers, this is because the consumers already know where to obtain quality products and are not ready to buy from another untrustworthy dealer. In some nations, the harsh policies and regulations limit new entry into the industry.
Market structure of the company
The kind of market structure that the firm operates under is oligolistic structure. This kind of a market has some players having different unique products and is dominated with a few large companies (Kerin, 2015). The barriers into the market are high hence making it difficult for new firms to make it in the industry but because of the few firms, the upcoming ones can also access the market. The market structure in its entirety benefits AU because it allows the firm to diversify its products and at the same time meeting its customers’ states and preference.
Section 3: Assessment of the Entrepreneur and the Team
There exist different knowledge gaps in the industry, for instance, the prices of the products offered in the industry are too high, and some athletes cannot afford it. The other gap is lack of high-quality products in the market and poor customer relations. If all these are covered, the work of the marketing department will be reduced. There are a number of ways of covering this, first, by producing quality products with varieties that could meet the needs of the target population who are the athletes. In a competitive market like this, the only way out to be competitive is by producing high-quality products that last for long and are affordable to the buyers. The company has invested in the production of quality products such as shirts, footwear, and even accessories hence filling the gap that existed before. The athletes wanted a shoe and clothing that could support them in any kind of weather. Since the company outsources its materials; its production cost is low, this enables the company to relatively reduce its price compared to that of its competitors (Clayton, Ozbolt " Confederation College, 2013). Customers are always concern of two things, that is the price and the quality of the products and services offered. The company is much concern of the quality that is why its quality is the best in the market, because the quality is good and the price is affordable, more clients will go the products hence boosting its output. The last gap is poor customer relations; this is a very important factor in any industry, if customers are not fully engaged and listened too, their needs will not be satisfied and hence forcing them to seek the products from another company that pays attention to their complaints and compliments.
The way the team is structured is unique; the structure is not complicated and has a central command hence making it easy to manage. From the chairman who is the founder of the company there exist different departments that are headed by an officer, the departments carry different function. The officers include Chief information officer, Chief Production Officer, Chief Digital Officer, Chief Revenue Officer, Chief Financial officer, Human Resource and the President of the North America Officer. The offices work independently and have sub-units that carry out a more specialized function. All the officers are answerable to the CEO who is the Chairman of the company. There is no overlapping of duties in the structure, therefore, enabling the company to work efficiently and effectively. For example, the revenue department is fully responsible for the collection of revenue and all the incomes that the company receives from its undertakings. Human resource department, on the other hand, carries out a number of tasks which include training of employees, interpreting employment laws, hiring and firing of workers and looking into the welfare of workers. Marketing and product development falls under the production office headed by Chief production officer (Under Armour, 2017).
Section 4: Business Phasing
Business phasing also known as the stages of a business refers to the logical progression of a business idea starting from an idea to a viable business. The different phases/stages of a business idea include Idea stage, Concept, Test marketing stage, Product/service development and Commercialization, the stages are important as for the success of a business is concern. There is a risk that is involved in each of the phases, how the idea goes through the phases determines how prosperous the business will be. The phases are discussed below.
Idea Stage/phase
This is the initial and important phase as far as the lifecycle of business is concern. It is also known as the seed stage; the stage is important because any mistake made at this stage will affect the business for good. The new ideas can be obtained through some methods these include brainstorming, suggestions from workers, studying the products or services offered by competitors in the same industry, inviting compliments and suggestions from clients and carrying out market research to establish the needs and their wants. If the idea gathering process is perfectly done, there will be little risks involved when the product or the idea is put into practice. For instance, in the case of the idea Under Armour Company, the idea was generated following research on the market and the shortcomings from the competitors. The feedback from the stakeholders such as the customers and dealers also is important in the idea generation. The idea of improving the quality of the sports products such as shoes and shirts to suit the needs and preference of customers led to the company introducing a new product that no one has ever made. At this phase, the idea should be agreed up, its merits and demerits also discussed in details before the idea moves to the next stage.
Concept Stage
This is the second phase of the business cycle; it is the most important phase because much takes place at the stage. At this point, the idea generated is fully structured and put into a more detailed concept (Clayton, Ozbolt " Confederation College, 2013). The idea is screened further and any errors corrected before it proceeds to the next phase. The organization of the company at this stage surveys to ascertain if the clients or customers have an idea of the new product he stages is more tedious than the idea generation stage; this is because it entails more of research than office work, customers feedback here is very important. It is at this stage that the company conducts market research to determine if the final consumers of the product are ready to have the new product or not. The team here should do all it takes to explain to the customers the new product in the market to establish their feedback concerning the product. For the case of the company in question, the company set up a group of consumers to help in the survey; it is these individuals that will give the information as far as the new product is concern. These consumers are normally selected randomly; they should be from different background, race, ethnicity, age, gender, and even religion. The feedback from these individuals will be collected and evaluated, if the overall result about the product is positive; the compliments serve to make the necessary changes before the idea proceeds to the next stage. The stage is conducted to establish the consumers' reactions towards the new product; they are asked what they think of the product in the market and if they feel the new product. The stage is more detailed, and thus it takes time compared to idea generation.
Test Marketing Stage
This is the stage in which the new product to be introduced in the market is tried out by introducing it to a particular market segment. This stage acts as a risk control tool; this is because it acts to minimize the risks involved in the whole process before the new product is commercialized. If error is made at this stage, the company might end up commercializing the product that consumers do not want. This stage is a piloting stage; the product is tested by introducing it to a selected market segment, the market should be a representation of the target market. In other words, the product is experimented in which there will be little risks; it is not as when the product is introduced in the mass market. At the point the company can manufacture its high-quality products and give it to a selected targeted population; it could be a few athletes who will be given the product and feedback collected from them. In most cases, the products are issued for free because it is meant for trail. In case the new product fails the market test, the company goes into its drawing board and establishes the reasons for the failure then reintroduce once more to the market. The necessary changes will be implemented, and if it fails again, the product will be rejected by the organization.
Product/Service Development stage
This is the second last stage of the cycle; there is little much happening at the stage. At the phase, all the decisions are made and what remains is the production of the product. What the company does at the stage is arranging how it will distribute the new product to the target market; it should also determine the channel of distribution it should use. Most of the work here is done by the marketing department; their work will be how the product will reach the market and the costs involved. The finance department, on the other hand, will release the funds to support the distribution of the products; it is a kind of join operation involving several departments in the company. The advertisement department will have a task of advertising the new product to be introduced into the market. Before the release of the product to the market, the new products should have been produced and is ready for release to the mass market for the first time; the stage is where all the preparation for the product is done before its release.
Commercialization stage
This is the last stage of a new product, at the stage, nothing much goes on here, there is not brainstorming as it is in the first stage. The stage happens when the idea has passed all the other stages successfully; it is not that the stage is not that important, it is equally important because without it the product will not reach the indented market. At this point, the company introduces large quantities of the product to the market. In the case of Under Armour, the improved and modified products such as the accessories and the clothing are introduced to the market for sale (Clayton, Ozbolt " Confederation College, 2013). At this level, the company can invest in the product because the risks involved are reduced compared to the outcome.
Recommendations
In the quest for managing its future production, Under Armour will have to ensure that it reduce its operation costs through outsourcing raw materials from affordable suppliers. Currently, Under Armour is fourth in the sports apparel industry in terms of market share. By taking advantage of its position, the company will have to outsource experts from its major competitors. The experts will play an instrumental role in providing the company with advice on the measures to embrace in increasing its future production. In terms of price elasticity, with the high consumer demand, the company will have to ensure that it slightly increases the prices of its commodities. Subsequently, this will contribute to an improvement in its profit maximization.
References
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Clayton, G., Ozbolt, J., " Confederation College. (2013). Entrepreneurship and starting a business. Toronto: Productive Publications.
Kerin, R. (2015). Marketing (1st ed.). New York: McGraw-Hill/Irwin.
Under Armour. (2017). Under Armour 2017 Annual Financial Report, Company Review.
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